Down Payment and Mortgage Insurance

How Do You Determine Your Down Payment?

Your down payment is the money that you pay toward the cost of your new home at the time of purchase. You borrow the rest from the bank as a mortgage.

Required down payments could start as low as 5% of the purchase price of the home. A loan from the Federal Housing Administration (FHA) could require just 3.5% and a loan from the Veterans Administration (VA) may not require any money down.

PMI: Private Mortgage Insurance

If you put down less than 20%, you may be required to pay Private Mortgage Insurance. This will be added to your monthly mortgage expense but can be eliminated once your loan balance reaches 80% of the original loan amount. Consult your lender for loan options and down payment requirements.

Three common ways of funding a down payment:

  • Savings.
    Buyers often save for years by reducing expenses. Many postpone vacations and major purchases. Some even take a second job in order to build their nest egg.
  • Gift.
    A family member may be willing to give you a one-time gift that will enable you to get into the home. If you accept a cash gift, you’ll need to get it clearly in writing that the family member is making the gift outright, and has no financial interest in or obligation toward the property. A bank will not accept it as part of your down payment if your “gift” from your parents is really a loan that you will be required to repay.
  • Down payment assistance.
    State and local governments offer down payment assistance to low- and moderate-income homebuyers. Many nonprofit organizations also offer down payment assistance. Contact your lender or your state housing authority for information on these programs.